Q1) Map the proposed sequence of evolution of the economy of the BRICS. What indicators might companies monitor to guide their investment and organize their local market operations?
In 2001 the Goldman Sachs global economic team in their paper 'Dreaming with BRICs: The Path to 2050' developed the BRIC theory that groups together the economies of Brazil, Russia, India and China (BRICs). These countries look set to become the dominant economies by 2050.
The BRICS have experienced a lot of changes in their economies. Around the middle of the 20th century China witnessed its communist revolution, India became independent, Brazil was controlled by the military for 21 years and Russia came out of the Second World War as a major rival to the US. This was just the starting point for the BRIC economies.
During the financial crisis, Brazil remained very strong and its early recovery, including 2010 growth of 7.5%, has contributed to the country's transition from a regional to a global power. (www.traveldocs.com) The economy is the world's eighth-largest and is expected to rise to fifth within the next several years.
Brazil is classified as an upper-middle-income country with a GDP (Gross Domestic Product) of‚¬973 billion. During the administration of former President Lula, surging exports, economic growth and social programs helped lift tens of millions of Brazilians out of poverty.
For the first time, a majority of Brazilians are now middle-class, and domestic consumption has become an important driver of Brazilian growth. The economy of Brazil is characterised by large well developed agricultural, mining, manufacturing sectors and service sectors. The services sector takes the biggest share of their economy (66% of GDP), supplying services for the domestic economy mainly.
Brazil has enjoyed sustained economic growth since the year 2004, which has increased the rate of employment and real wages. After an economic growth in 2007 and 2008, the global financial crisis finally hit Brazil however Brazil was one of the first emerging markets to stage a recovery, with GDP growth returning to positive levels.
Brazil is becoming a global power like the other BRIC nations. There are a number of reasons for this. Brazil is involved in major manufacturing industries such as aerospace, bio-ethanol and auto-motives. Since 2004, a more outward look policy has been implemented by the government, promoting exports and fostering technological development to increase international competitiveness.
In 2008, additional tax incentives for investment, R&D and exports were introduced. Since 2003, Brazil has made progress towards putting in place the foundations for growth, with particular emphasis on achieving economic stability. Stabilisation has paid off: inflation has fallen and some progress has been made on reducing the public debt.
However, stabilisation has come at a high price. Real GDP growth has averaged only 2.7% since 2003, with the adjustment explaining in part why actual growth rates were lower than the rate of 3.7% used in our BRICs studies.
The future for Brazil will be very interesting to see. According to Goldman Sachs, over the next 50 years, Brazil's GDP growth rate averages 3.6%. The size of Brazil's economy overtakes Italy by 2025, France by 2031 and the UK and Germany by 2036.
According to Sachs, Brazil will remain an important destination for fixed income, equities and direct foreign investment inflows, because of the high carry trade, the value of the embedded option on growth, and its sound macroeconomic policies and external credit fundamentals.
Brazil is generally open to and encourages foreign investment. It is the largest recipient of foreign direct investment (FDI) in Latin America, and the United States is traditionally the top